Coronado Coal’s IPO float is the largest of any mining company in the world since the last mining boom earlier this decade. The coal mining company is looking to list itself on the stock exchange for $4.4bn as it aims to perform against expectations of fading coal giants.
Coal prices have been struggling in the wake of ongoing trade wars between China and the US as the steelmaking industry finds demand slipping amid higher tariffs on exports.
Coronado seems confident that it can allay fears in its market with an estimation of valuing each share at between $4 and $4.8, which would lead it to a total market value of around $4bn. This comes despite Australia’s Department of Industry, Innovation and Science expecting the value of coal to continue dropping significantly.
Part of the US- and Australia-based Coronado’s offering is for a single 30% share to go up for grabs, which it hopes will raise at least $1.2bn on its own.
The mining company is showing such intent at this stage because its profits of $578m this year are forecast to rise an impressive 27% next year alone. With so much discussion around the use of fossil fuels and their reliability in the future as Australia discusses its emissions policies, Coronado seems to think that this is the best time to maximize confidence in its company over the medium term.
Its current funder, the Energy and Minerals Group (EMG), expects to remain a shareholder in some capacity, although it will be raising capital by selling off its large minority 30% stake. The rest of the funding will be in escrow until February 2020, allowing accounts for the next financial year to normalize.
Gerry Spindler, Chief Executive of Coronado, said that EMG “intends to be a long-term holder” and will continue to manage its “reinvestment risk, and they like the potential of the cash flow and the production expansion opportunities that are available for the company.” The 24 October listing will allow EMG to chase up other mines that it could control and increase its market share in production in certain areas.
Coronado’s IPO is set to dwarf the last large mining company listed this decade back in 2011, before the recession hit the industry, JSW Steel fetched $1.9bn, and Australia’s last biggest listing came with Yancoal six years ago, when its IPO delivered $1.5bn.
Ayten Saridas, Coronado’s Chief Financial Officer, said that the IPO would enable the company to move into additional distribution channels. She added that this plan should deliver 60%-100% of “free cash flow” and noted that “on a yield basis, it ends up being 10% to 12%.”
Saridas did note that there would not be a spending spree right away, and the capital raised and additional cash flow will pay off any outstanding debts. This will help Coronado in “starting off our business with a no-debt position,” according to Saridas. She said that she expects the company to be debt-free within a year.
Fat Prophets Analyst David Lennox said that the fact that Coronado mines coking coal rather than thermal coal used in power sources means that its IPO valuation is realistic. With steelmaking relying on coking coal, higher demand was always likely, and Coronado faces less scrutiny from emissions and power generation.